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12 Nov 2004
MOODY'S UPGRADES RATINGS OF SMBC; OUTLOOK STABLE FOR CREDIT RATINGS
Tokyo, November 12, 2004 -- Moody's Investors Service has upgraded the long-term debt ratings
of Sumitomo Mitsui Banking Corporation (SMBC; deposit to A1 from
A3) and its keep-well letter supported subsidiaries, including
Sumitomo Mitsui Banking Corporation Europe Plc. (deposit to A1
from A3). SMBC's bank financial strength rating (BFSR) has also
been raised to E+ from E. The specific ratings and entities
affected are presented below. Short-term ratings for these
institutions are unaffected by the review. These actions conclude
the review initiated on July 26, 2004. Rating outlooks for
BFSRs are positive, while outlooks for debt ratings are stable.
The rating agency comments that the upgrade in BFSR reflects the bank's
progress in reducing the balance sheet risk represented by its large non-performing
loans and equity portfolio, and Moody's expectation that its non-performing
loans will further decrease. The upgrade also incorporates SMBC's
position as the second-largest banking group in Japan and Moody's
positive evaluation of the long-term value of its diversified franchises,
comprising strong retail and middle-market banking and wholesale
Moody's notes that the profile of and future selections for SMBC's business
portfolio, combined with disciplined management, may allow
the bank to maintain its pre-provision profit. SMBC's pre-provision
performance is consistently better than peers', characterized by
better expense management and larger fixed-income gains.
The bank has increased efforts to manage down the rate risk of its JGB
portfolio, and has strengthened its business portfolio -- in
areas such as risk-adjusted priced loans to small- and middle-market
segments -- so that it could respond positively to a rising-rate
However, SMBC's lag relative to peers in decreasing its non-performing
loans continues to position its credit expense/pre-provision profit
ratio at a comparatively high level, resulting in a less rapid pace
of retaining internal earnings. Consequently, SMBC's capitalization
(adjusted for deferred tax assets) is still weaker than peers'.
The upgrade of SMBC's credit rating to A1 strongly incorporates Moody's
positive evaluation of the strong safety net in place for large Japanese
banks. The rating agency views SMBC's large scale as a factor that
ensures that support from the safety net if necessary.
The positive rating outlook for BFSR reflects Moody's expectation that
SMBC's financial fundamentals will continue to show improvement,
particularly in capitalization. The key driver that could lead
to positive BFSR actions will be improvement in the bank's capitalization
measures relative to non-performing loans. Moody's preferred
measurement for capitalization is non-performing loans minus loan
loss reserve, as a percentage of adjusted Tier I capital (after
adjusting for deferred tax assets). If the bank can achieve its
targeted non-performing loan reduction, improve credit expenses
relative to pre-provision profit and show resulting improvement
of its Tier I capital structure, its current BFSR may be reviewed
for upgrade. A further increase in risk appetite without conservative
attention to capitalization, or deterioration in the bank's credit
expense/pre-provision profit relationship may put downward pressure
on its BFSR.
Sumitomo Mitsui Banking Corporation -- bank financial strength
rating to E+ from E, long-term deposit rating to A1
from A3, issuer rating to A1 from A3, senior unsecured debt
rating to A1 from A3, senior and junior subordinated debt ratings
to A2 from Baa1
Sakura Capital Funding (Cayman) Limited -- junior subordinated
debt rating to A2 from Baa1
Sakura Finance (Cayman) Limited -- senior subordinated debt
rating to A2 from Baa1
SB Treasury Company L.L.C-- preferred stock
rating to Baa1 from Baa3
SMBC Capital Markets, Inc. -- senior unsecured
debt rating to A1 from A3
SMBC International Finance N.V. -- senior
and junior subordinated debt ratings to A2 from Baa1
Sumitomo Mitsui Banking Corporation Europe -- long-term
deposit rating to A1 from A3
Sumitomo Mitsui Banking Corporation of Canada -- senior
unsecured debt rating to A1 from A3, senior subordinated debt rating
to A2 from Baa1
Sumitomo Mitsui Banking Corporation, Paris Branch --
long-term deposit rating to A1 from A3
Sumitomo Mitsui Finance Australia Limited -- senior unsecured
debt rating to A1 from A3
The following rating was confirmed.
Sumitomo Mitsui Banking Corporation Europe-- D- bank
financial strength rating
Senior Vice President
Financial Institutions Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100
Wei S. Yen
Financial Institutions Group
Moody's Asia Pacific Ltd.
No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.
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